Grooveshark runs a user-generated content (UGC) website that allows users to upload sound recordings and other users to stream those recordings. UMG Recordings (a subsidiary of Vivendi, VIV:FP) sued Grooveshark for copyright infringement based on its users’ activities. This week, a New York state appellate court partially denied Grooveshark’s eligibility for the online safe harbors enacted by Congress in the 1998 Digital Millennium Copyright Act. This ruling creates several problems for UGC websites that let users post sound recordings, and it demonstrates one way Congress mishandled drafting its online safe harbors.

The Ruling

In 1998, Congress provided UGC websites with a safe harbor for user-caused copyright infringement (17 U.S.C. 512(c)). To be eligible for the safe harbor, UGC websites must satisfy some preconditions. If they do, copyright owners unhappy about users committing copyright infringement can send takedown notices to the UGC website. If the UGC website responds quickly to a takedown notice, the DMCA online safe harbor says that the website avoids further copyright liability for the items identified in the takedown notice. In contrast, if the UGC website ignores/rejects the takedown notice, it potentially bears legal responsibility for its users’ actions. Obviously, most UGC websites prefer to limit their risk, so they routinely take down items identified in the takedown notices.

I acknowledge that you probably think most court opinions address arcane legal issues, but even I think this ruling dealt with unusually arcane legal issues. The DMCA online safe harbors apply to “copyright” claims, but it turns out the word “copyright” is ambiguous. In the 1976 Copyright Act, Congress attempted to eliminate most state copyright laws. As a result, today most potentially copyrightable works either are protected under federal law, or they are not protectable under federal or state copyright law at all. However, Congress preserved a few categories of works that can be covered by state copyright law–the most commonly-encountered example is certain bootleg recordings of concerts. Congress also said that sound recordings made before 1972 remain protected under state copyright laws. Some of these pre-1972 sound recordings are hugely important and highly recognizable cultural assets; for example, the Grooveshark court cites the UMG-owned recordings of “Peggy Sue” by Buddy Holly, “Johnny B. Goode” by Chuck Berry, “My Girl” by the Temptations and “Baby Love” by the Supremes.

It’s this latter group of pre-1972 sound recordings at issue in the Grooveshark case. Grooveshark argued that the DMCA safe harbors applied to both federal and state copyrighted works. UMG argued that the safe harbors only apply to federal copyrighted works, not state copyrighted works. In a short and relatively unenlightening opinion, the New York state appellate court sided with UMG and ruled that the DMCA safe harbor’s “notice-and-takedown” scheme doesn’t apply to state copyrighted works.

Implications

I see at least three problems with the court’s ruling:

Problem #1: In 20111, a New York federal court (in Capitol v. MP3Tunes) reached the directly opposite conclusion and held that state copyrighted works are covered by the DMCA. (The Grooveshark opinion acknowledged this precedent but made no effort to distinguish it). In 2007, the federal Ninth Circuit Court of Appeals held in 2007 that all state IP claims against UGC websites (including, presumably, state copyright laws) categorically are preempted by a different federal website immunity, 47 U.S.C. 230 (see Perfect 10 v. ccBill).

Thus, we have three different and conflicting interpretations of the DMCA’s applicability to pre-1972 sound recordings. What a mess! It’s never good for anyone when courts have three different answers to the same legal question. It also means litigants may engage in wasteful forum-shopping efforts to find the judicial venue where the rules are most favorable them.

Problem #2: The ruling doesn’t hold Grooveshark liable for users’ copyright infringement of pre-1972 sound recordings. Instead, Grooveshark simply failed to qualify for the safe harbor for those works, so the judicial inquiry will now turn to the default laws applicable to “secondary” infringement of state copyrighted works. Unfortunately, we have no idea what those rules are. Because most UGC-related copyright infringement cases have been resolved by the DMCA safe harbor, we don’t have many rulings interpreting the secondary infringement rules in those rare situations when the safe harbor doesn’t apply (see this post for more about that). Furthermore, we have even scarcer caselaw interpreting secondary liability for infringement of state copyrighted works. (It’s probable the rules will track the federal copyright laws, but that’s not guaranteed). Thus, this case now involves novel and unpredictable legal questions.

Problem #3: Grooveshark has no easy way to distinguish which user-submitted sound recordings are covered by federal copyright versus state copyright. However, its legal liability depends on this difference. Operationally, how should Grooveshark proceed? Without universal protection from the DMCA’s safe harbor “notice-and-takedown” scheme, Grooveshark may be required to pre-screen user uploads to assess whether the file is a pre-1972 sound recording or not, and then it may have to handle those files differently.

However, if that’s the result, Grooveshark probably doesn’t have a viable business. The pre-screening costs would be exorbitant, Grooveshark would make many classification errors, and copyright owners would subsequently argue (probably unsuccessfully, though we are not sure) that Grooveshark should lose the DMCA safe harbor if it fails to catch infringing files during its pre-screen. (See the latest Viacom v. YouTube ruling for examples of copyright owners’ arguments about website operator scienter).

More importantly, if Grooveshark must build a uniform site-wide operational process to deal with the small minority of user-uploaded recordings protected by state copyright law, then the DMCA online safe harbors failed at a fundamental level. Even if the safe harbor applies to 99% of the works, the safe harbor doesn’t help UGC websites with their business planning because the UGC website must still anticipate and address the 1%–and this becomes impossible if, without further research, the 1% looks identical to the 99%.

In a recent post, I discussed some key design attributes of safe harbors and immunities. One element I identified was “global preemption,” meaning that a successful safe harbor has to swipe out all overlapping claims covering the same activity. The Grooveshark ruling suggests Congress failed that design principle by leaving open a state copyright workaround. In my prior post, I identified some other ways that the DMCA online safe harbors violated best-practice design principles. I doubt Congress will be revisiting the DMCA online safe harbors soon (nor would I anticipate any beneficial changes when it does), but its mistakes with the DMCA safe harbors offer useful lessons for Congress’ next attempts to draft effective safe harbors.